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Optimal Forest Taxation under Private and Social Amenity Valuation

Author

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  • Erkki Koskela
  • Markku Ollikainen

Abstract

This paper analyzes socially optimal forest taxation when the government has a binding tax revenue requirement. In the Faustmann model the optimal design of forest taxation consists of non-distortionary taxes, such as site productivity tax, site value tax or profit tax. A combination of distortionary unit (or yield) tax and timber tax can also be used to collect the tax revenue in a non-distortionary way. In the Hartman model with amenity services as a public good, the optimal design consists of a non-distortionary tax and a Pigouvian tax, which adjusts the private rotation age to the socially optimal one. Now only the site productivity tax is non-distortionary, while unit, yield, timber, site value and profit taxes generally serve as a corrective Pigouvian taxes. In the absence of a non-distortionary tax, a combination of unit (or yield) and timber taxes can often be used to both tax revenue collection and Pigouvian correction.

Suggested Citation

  • Erkki Koskela & Markku Ollikainen, 2001. "Optimal Forest Taxation under Private and Social Amenity Valuation," CESifo Working Paper Series 409, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_409
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    File URL: http://www.cesifo-group.de/DocDL/cesifo_wp409.pdf
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    References listed on IDEAS

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    1. Koskela, Erkki & Ollikainen, Markku, 2001. "Forest Taxation and Rotation Age under Private Amenity Valuation: New Results," Journal of Environmental Economics and Management, Elsevier, vol. 42(3), pages 374-384, November.
    2. Bowes, Michael D. & Krutilla, John V., 1985. "Multiple use management of public forestlands," Handbook of Natural Resource and Energy Economics,in: A. V. Kneeseā€  & J. L. Sweeney (ed.), Handbook of Natural Resource and Energy Economics, edition 1, volume 2, chapter 12, pages 531-569 Elsevier.
    3. ERKKI Koskela & MARKKU Ollikainen, 1997. "Optimal Design of Forest Taxation with Multiple-Use Characteristics of Forest Stands," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 10(1), pages 41-62, July.
    4. Sun Joseph Chang, 1982. "An Economic Analysis of Forest Taxation's Impact on Optimal Rotation Age," Land Economics, University of Wisconsin Press, vol. 58(3), pages 310-323.
    5. Strang, William J, 1983. "On the Optimal Forest Harvesting Decision," Economic Inquiry, Western Economic Association International, vol. 21(4), pages 576-583, October.
    6. Dan Kovenock, 1986. "Property and Income Taxation in an Economy with an Austrian Sector," Land Economics, University of Wisconsin Press, vol. 62(2), pages 201-209.
    7. Englin, Jeffrey E. & Klan, Mark S., 1990. "Optimal taxation: Timber and externalities," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 263-275, May.
    8. Kovenock, Daniel J. & Rothschild, Michael, 1983. "Capital gains taxation in an economy with an `Austrian sector'," Journal of Public Economics, Elsevier, vol. 21(2), pages 215-256, July.
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